On an Instagram post dated 19 Jan 2020, Mr. Schneider suggested a 3-fund portfolio consisting of 54% VTSAX, 36% VTIAX and 10% VBTLX.
For young investors like me it is advisable to be 100% in equities, at least up to 3-5 years before retirement when you should move some of your position to bonds, but if we were to exclude the 10% allocation to VBTLX, the portfolio would look like this: 60% VTSAX and 40% VTIAX.
Now, considering that VTIAX is 0% USA (Thank, Jeremy, for clarifying this on your DM), the portfolio would have a 60% US exposure.
In a cap-weighted total-world all-markets index fund, the US is represented by 56.7%.
If this is the case, wouldn’t be indicated for an investor to choose just one index fund such as VTWAX that is market cap-weighted and does the job for you, without the need to set up an arbitrary percentage of US stocks (60% in the case above)?
As an EU investor, I am lucky enough that Vanguard decided to launch in 2019 an ETF that does just that: track the FTSE All-World index - a total world market cap fund - just like VTWAX. Before that, I was investing only in an S&P 500 ETF, but I am slowly moving into a All-World allocation.
My final questions are:
Should we be 100% in US equities, 56.7% according to a World Market Cap percentage, or somewhere in between (as Jack Bogle suggested in 2017 - 80% US equities)?
A young investor should own a bond index fund, considering that the best long term outcome is being exposed to 100% equities?
Do valuations matter? At the moment, the US market is trading at a P/E of 25.3, but ex-US markets have a P/E of 16.3. This may be a good argument for a cap-weighted all-world diversification that still has a P/E of 20.6.
Do you believe in the value premium of small-cap stocks, and recommend investors to hold something like VSIAX ?